State Residential Care and Assisted Living Policy: 2004. State Approaches to Reimbursing Services

03/31/2005

The extent to which low-income older people have access to residential care settings as an alternative to nursing homes depends in large part on the extent to which states use Medicaid to cover services in these settings and providers' views on the adequacy of Medicaid's service reimbursement rates. In addition to the amount of the payment, the reimbursement approach can also serve as incentives or disincentives for providers.

Data suggest that states have increased their payments over the past 4 years, although they are still quite low relative to private-pay rates, and may not cover residents' needs. However, key informants suggest that providers' willingness to accept Medicaid rates is increasingly driven by an over-supply of facilities and difficulty finding private-pay residents.

States face a number of major challenges in developing Medicaid payment methodologies for residential care services, including: (1) defining and distinguishing types of services, (2) collecting data on which to base payments while avoiding complex and burdensome new data collection requirements, (3) developing rates that support quality care and aging-in-place, and (4) providing reimbursement that is sufficient to assure provider participation within state budget constraints.

States use five primary approaches to set rates for Medicaid services provided in residential care settings:

  • Flat rates;
  • Flat rates that vary by type of setting;
  • Tiered rates;
  • Case-mix rate; and
  • Cost-based reimbursement and fee-for-service rates.

Table 1-13 lists the states that use Medicaid to cover services in residential care settings according to their rate-setting approach. Descriptions of each states' reimbursement approach and rates can be found in Section 3 under the heading public financing.

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